Dollar Rises to Strongest Weekly Gain Since June Amid Central Banks' Policy Decisions

The US dollar experienced its strongest weekly gain since June, rising as central banks made policy decisions that widened the gap in favor of the USD. The Federal Reserve's decision to hike interest rates and signal a hawkish rate path contributed to a rise in two-year Treasury yields, while the Bank of England (BoE) chose not to tighten monetary policy despite concerns over high energy prices.

The BoJ delivered the largest shock to markets with a split vote and cautious assessment from its governor, Ueda. This sent USD/JPY above 158, maintaining a significant US-Japan rate differential. With investors' expectations of an aggressive tightening delayed rather than removed, long-yen positions were forced to reset.

The next move for the dollar depends on incoming data and whether the BoJ clarifies its pace of further tightening. A softer labor or consumption backdrop could weaken the dollar's front-end support, while a more forceful signal from the BoJ might reverse the yen sell-off.